With the Presidential election less than 2 weeks away, investors are talking more politics and potential election outcomes than possibly ever before. Its fair to say there is some concern associated with the election this year with no shortage of political news to digest and vastly contrasting agendas. While elections do have consequences, that does not necessarily mean our markets may be meaningfully impacted.
Looking back at our past, politics seemingly have not mattered all that much for equity returns. Despite all the headline news, over the long term the party affiliation of the U.S. President has had a minimal impact on stock returns. The chart below highlights over the Dow Jones Industrial Average returned just over 9% annualized over a 55-year period, no matter which party occupied the White House.
Regardless of whether the White House and Congress are unified or split, or which party has majority control, markets tend to be resilient. History shows that the stock market (as represented by the S&P 500 Index) generally marches higher regardless of which party is in charge. There is plenty of uncertainty regarding this tight election and its outcome but what we may expect is market volatility surrounding Election Day.
Looking at stock market performance through a slightly different lens, the chart below highlights the average performance of the S&P 500 Index around U.S. Presidential elections dating back to 1972. It looks at returns both before and after Election day, however it removes the performance during the Great Recession of 2008.
As we all know, past performance does not guarantee future results. There are many other factors to consider that may impact market performance. The recovery of our economy from pandemic lows, further potential stimulus packages and continued quantitative easing by the Federal Reserve sit at the top of the list.
With election day approaching, it is important to continue with a long-term approach when viewing your asset allocations. Equity markets may be more concerned about the outlook of the economy (and its recovery from the pandemic) than the outcome of the Presidential election. Investors should prepare for bouts of volatility, but once the uncertainty surrounding the election is concluded, the market will resume its focus on the economy.
No matter how the 2020 general election plays out, we have a great team of people who are available to help you!